The folks at Starboard Value may not have the household name of loudmouth activist investors like Carl Icahn and Third Point’s Dan Loeb. But those occupying the executive suites of the companies Starboard has targeted know these guys mean business.
The latest example is Wausau Paper, known for its specialty paper, towel, tissue, soap and dispensing products. The company recently agreed to nominate two directors with expertise in the tissue and paper industry recommended by Starboard. Wausau also agreed to create a committee made up of the two Starboard nominees and any other two board members that would advise the board on operations, investments and capital spending.
Wausau had known for some time that the hedge fund, which now owns 9.7 percent of the shares, was unhappy with the way the company was being run. Last October Starboard expressed its concern with the company’s plan to take on debt to expand its tissue operation, calling on the company to finance the expansion by divesting certain noncore assets, including what Starboard deemed to be the underperforming paper business, timberlands and hydroelectric assets. This would allow Wausau to “unlock significant unrealized value for shareholders, remove the drain of the losses in the paper business and at the same time significantly reduce risk by allowing the issuer to finance the tissue expansion project without taking on additional debt,” Starboard stated in a letter to management at the time.
Sure enough, within two months Wausau agreed to sell its premium print and color brands and the remaining timberland holdings and to close a paper mill.
Wausau’s actions in response to Starboard’s activism were not an anomaly. In nearly 90 percent of the cases where it filed a 13D and nominated directors — except when the company has sold itself during the process — it wound up putting one or more of its nominees on the board or reaching a settlement with the company. Since 2004 Starboard has added or replaced more than 80 corporate directors on more than 30 public company boards.
Starboard is the value and opportunity business of Ramius, the alternative investment management firm that merged with Cowen Group in June 2009. Ramius still owns a minority, passive piece of Starboard, which is led by Jeff Smith, CEO and chief investment officer; Mark Mitchell, portfolio manager and head of risk management and trading; and Peter Feld, portfolio manager and the head of research. Today Starboard manages close to $700 million.
Back in October the hedge fund won a proxy fight with Regis Corp., owner of the largest chain of hair salons, when shareholders elected all three of Starboard’s director nominees, including Smith.
Also in October, Starboard announced a settlement with another holding, MIPS Technologies. Under the deal, the maker of computer processors agreed to increase the size of the board from seven to nine and nominate two Starboard recommended directors. MIPS also agreed to create an independent advisory committee of the board and to appoint at least one Starboard individual to the committee. In return Starboard agreed to drop its proxy fight as well as other demands.
In contrast, AOL seems unwilling at this point to buckle under Starboard’s pressure. When the hedge fund announced a 4.5 percent stake in the once high-flying internet company back in December and urged the board to take immediate action to address significant concerns highlighted in an eight-page letter, the company aggressively dismissed the activist.
AOL issued a statement asserting that over the past two years it had significantly reduced costs, sold noncore assets, made significant investments and repurchased over 10 percent of its stock. “AOL has a clear strategy and operational plan to provide our consumers and customers with exceptional value, which we believe will lead to the creation of shareholder value,” it added in the statement.
But in light of Starboard’s track record, it would not be surprising if AOL agreed to some sort of compromise settlement with the firm as well.
